Aug. 10 (Bloomberg) -- The dollar is likely to slump
further should the U.S. Federal Open Market Committee hint today
at renewing its bond-buying program to support the economy,
according to Standard Bank Plc’s Steven Barrow.

The currency “has already fallen sharply in the last
month, but history suggests that this could be peanuts compared
to what could happen,” Barrow, head of research for Group of 10
countries at Standard Bank in London, wrote in an investor note
today. He compared the greenback’s current drop to its decline
in 2002, which grew more pronounced after the Federal Reserve
moved toward a second round of interest-rate cuts.

Although the Fed is unlikely to announce an “aggressive
ease” today, there could be a “tweak” such as a pledge to
reinvest proceeds from maturing mortgage bonds and buy more
debt, Barrow wrote. The Fed bought $300 billion of Treasuries
between March and October 2009 to bring down borrowing costs
amid the deepest recession since World War II.

“The feeling in the market is not that the Fed doesn’t
know what it’s doing, but that the Fed is sufficiently surprised
by events to have to restart easing,” Barrow said in a phone
interview. “Even if you go back even just a month or two, the
vast majority of people who don’t have as much information as
the Fed, but at the same time are supposed to know what they are
doing, were all expecting the next move to be a tightening.”

The dollar has declined 2.7 percent over the past three
months against developed-world currencies, according to
Bloomberg Correlation-Weighted Currency Indexes, amid weaker
economic data. It traded 0.9 percent higher against the euro at
$1.31 as of 2:30 p.m. in London.

“If the Fed moves in the direction of more quantitative
easing, or easing in some other way, the downside could open up
really quite substantially for the dollar,” Barrow said.